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Contrary to current thinking, corporate directors who belong to multiple boards are more diligent than others, study finds

August 1, 2005

For more information, contact: Benjamin Haimowitz,

Not too long ago a corporate director who belonged to multiple boards was generally considered a valuable company resource. Today, changing times and corporate scandals have put that view into retreat, and the term "overboarding" has gained wide currency to express disapproval for such directors.

As the authors of a new study of multiple directorships put it, "overboarded directors are portrayed as ego-driven, greedy individuals who often miss board meetings and are woefully overstretched."

The study, to be presented at the annual meeting of the Academy of Management (Honolulu, Aug. 7-10), then proceeds to call this view into question.

"We commenced this research with the objective of informing practitioners about the suitability (or otherwise) of limiting the number of directorships an individual can hold," write the paper's authors Geoffrey Kiel, Gavin Nicholson, and Kevin Hendry, all of the University of Queensland, Australia. "Our findings reveal no statistical support for the propositions that director workload inhibits director diligence or that director workload is negatively related to firm financial performance. In fact, the findings better support the opposite conclusion -- boards with greater multiple directorships are more likely to be more diligent, and individual directors with multiple directorships are more likely to attend committee meetings."

Although the study focused on Australia, the authors consider its findings to apply generally.

Says Kiel: "We have no reason to doubt that what we found to be true for the companies we studied is true for corporations in all the advanced economies."

Kiel and his colleagues collected the names of the directors of all 1,050 firms listed on the Australian Stock Exchange (ASX) and found that three fourths of the 7,387 directorships were held by individuals sitting on only one or two boards. Only six individuals sat on eight or more boards, while 180 individuals, accounting for about 12 percent of the total directorships, sat on from four to seven boards. The researchers found no significant relationship between multiple directorships on boards (the total number of directorships represented on a board, divided by the number of directors) and corporate financial performance.

In short, multiple directorships appeared neither to accentuate nor diminish shareholder returns.

Focusing on a smaller group of firms -- the country's 50 largest in terms of stock capitalization -- the researchers analyzed the relationship between multiple directorships and diligence in attending board meetings and committee meetings. They found that individuals who held multiple directorships were likely to be more diligent in attending committee meetings than other board members and that companies with more multiple directorships enjoyed better attendance at board meetings than those with fewer multiple directorships.

They also found a slight positive relationship among these largest 50 firms between multiple directorships and returns to shareholders.

"In conclusion," the authors write, "boards need to consider their composition in a case-by-case basis...There is evidence that certain contexts require certain boards (e.g., firm size was related to multiple directorships), but we should be very careful about making blanket policy recommendations for all boards. The lack of any evidence linking multiple directorships to firm performance or even director diligence makes this point clear."

The Academy of Management, founded in 1936, is the largest organization in the world devoted to management research and teaching. It has close to 16,000 members in 90 countries, including some 10,000 in the United States. The academy's 2005 annual meeting will draw more than 6,000 scholars and practitioners to Honolulu for more than 1,000 sessions on a host of issue relating to corporate organization and investment, the workplace, technology development, and other management-related subjects.

Media Coverage: "Overboarding". (Friday, October 07, 2005).
The Observer. August 7, 2005. Management: All that's 'good' is pure poison. (Sunday, August 07, 2005).

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